Inflation likely eased in December — BSP

By Melissa Luz T. Lopez, Senior Reporter
INFLATION likely eased further in December, the Bangko Sentral ng Pilipinas (BSP) said, with the rate possibly settling at the five percent level given lower fuel and rice prices.
The BSP Department of Economic Research said on Friday that December inflation could range between 5.2-6%, which if realized will be the slowest since at least July.
“The sustained slowdown of inflation during the month is seen to be driven mainly by the continued decline in petroleum and rice prices, the rollback in minimum jeepney fare, and the slight appreciation of the peso,” the central bank unit said in a statement sent on Friday.
The Philippine Statistics Authority (PSA) will report December inflation data on Jan. 4, 2019.
Inflation clocked in at six percent in November, easing from nine-year highs of 6.7% logged in September and October. Still, the BSP forecast meant that prices have risen faster compared to a year ago, with the December 2017 rate tallied at 2.9%.
Retail pump prices declined further this month to mirror trends in the world crude market, at a time of ample supply coupled with uncertainties in the global economy amid trade tensions between the United States and China. According to the Department of Energy’s oil monitor, the price per liter of gasoline, diesel and kerosene posted net declines year-to-date as of Dec. 18.
In response, the Land Transportation Franchising and Regulatory Board took back the P1 increase in minimum jeepney fares implemented in November, leading to a decline in transport costs.
A stronger peso versus the dollar also helped reduce oil import payments, the BSP said, after the local unit traded at the P52 level this month.
For food, PSA data also showed sustained decreases in the retail price of well-milled and regular milled rice in December.
ELECTRICITY RATES UP
However, the BSP said higher electricity rates could partly offset lower prices of other commodities.
Power distributor Manila Electric Co. announced a P0.0902 per kilowatt-hour increase in utility rates for December, marking a second straight month of a higher charge due to bigger generation costs.
“Moving forward, the BSP will continue to closely monitor evolving price trends and domestic demand condition to help ensure that the inflation target is achieved,” the central bank added.
Inflation has averaged 5.2% from January-November, matching the full-year forecast of BSP but remains well above the government’s 2-4% target band.
The Monetary Board decided to raise benchmark interest rates by 175 basis points (bp) this year to cool inflation expectations and rein inflation back to target in 2019, marked by a back-to-back increase of 50bp each in September and October to mark the BSP’s most aggressive tightening move in over a decade.
Central bank officials kept interest rates steady during their Dec. 13 meeting, as they now expect prices of widely-used goods to trek a “lower path” over the next two years. Inflation will likely return to below four percent by the end of the first quarter of 2019, while the full-year print is seen averaging at 3.2%.
DECLINE SUSTAINED
In a separate report, economists at First Metro Investment Corp. (FMIC) and the University of Asia & the Pacific expect December inflation to inch lower to 5.9%, with the deceleration seen to spill over next year.
“Inflation is on a clear downtrend and should go below 5% (year-on-year) in Q1 2019 and steadily fall for the rest of 2019. Lower food prices and very soft crude oil prices should more than offset the increase in minimum wage and transportation rates,” the FMIC analysts said in its December issue of The Market Call.
In turn, easing inflation should help boost overall economic growth.
“Rapidly decelerating inflation, robust job gains and election spending, which should start in November 2018, and OFW peso remittances should provide ammunition for a recovery in consumer spending both in Q4 2018 and in 2019,” the report read.
FMIC expects Philippine gross domestic product to expand by 6.5% this year, matching the low end of the revised 6.5-6.9% target set by the Duterte administration.